US STOCKS-S&P

Hits 1,400 on hopes for central bank action

August 07, 2012|Reuters

* Elan Corp shares slide as Pfizer, J&J scrap drug

* Standard Chartered shares tumble in London

* Indexes up: Dow 0.7 pct, S&P 0.9 pct, Nasdaq 1.3 pct

By Anna Louie Sussman

NEW YORK, Aug 7 (Reuters) - U.S. stocks rose for a third dayon Tuesday in light volume, pushing the S&P 500 above 1,400 forthe first time since early May, on cautious optimism theEuropean Central Bank will act soon to contain the bloc's debtcrisis.

Markets continued their rise after an upswing on Friday wheninvestors embraced ECB President Mario Draghi's comments aboutrestoring calm to the euro zone's troubled bond markets.

Since then, good news out of Greece and declines in Spanishand Italian yields from peaks above 7 percent have keptsentiment positive. The period of relative calm allowed the S&Pto break through the psychologically important 1,400 aftertrying unsuccessfully the past couple of sessions.

"Lots of people are starting to discount the fundamentalissues in Europe and are now embracing risk. Spanish yields havecome in, so the fire is not out, but they seem to be containingit better," said David Lutz, head of ETF trading at StifelNicolaus Capital Markets in Baltimore.

However, volumes are light due to summer holidays, and thereal tests for markets may come in September. The ECB isexpected to face decisions about controling the euro zone debtcrisis and the Federal Reserve could add stimulus to aid theflagging U.S. economic recovery.

Investors were betting that a larger-than-expected fall inGerman industrial orders in June will underscore the importanceof quick action from the ECB. Germany's economy has fared betterthan those at Europe's periphery, but several large German manufacturing companies said demand from Europe and emergingmarkets had slowed.

Volume was light, with about 2.02 billion shares traded onthe New York Stock Exchange, NYSE Amex and Nasdaq near midday.Average daily volume in 2012, to date, is 6.69 billion.

"Europe is getting on its feet. There's a lack of negativenews more so than any positive news, so people are justbreathing and watching and hoping that Europe can get its acttogether," said Joseph Benanti, managing director of RosenblattSecurities in New York.

"We don't really have great volume on this, so there's not alot of conviction behind the rally," said Benanti.

Despite worries over European and U.S. economies, the S&P500 index is up more than 11 percent so far this year.Yield-hungry investors have kept buying stocks as U.S. andGerman government bond prices soar and yields hit historic lows.

A group of investors rescued Knight Capital Group ina $400 million deal that kept the market maker in business, but existing shareholders were nearly wiped out. Knight shares wereup 3.9 percent at $3.19 but were down 77 percent from an Octoberhigh of $14.

Drugstore chain CVS Caremark's shares were down 1.6percent to $44.20 after a rise to $45.90 in premarket trading ona strong earnings report and brighter forecast for the year.

Statements by U.S. policymakers showed Fed officials holddivergent views about what to do about the economy. Boston FedPresident Eric Rosengren said in a New York Times interview theFed should expand its holdings of mortgage bonds and Treasurysecurities until it is satisfied with the health of the economy.

But on Monday Dallas Federal Reserve President RichardFisher told Reuters new steps by the Fed to stimulate theeconomy so close to a presidential election would be a mistake.